Homes will be subject to sales and lettings restrictions for a five year period from date of purchase

Provisions for starter homes will need to be made by developers on ‘reasonably-sized sites’. The government are still deciding on what qualifies as a ‘reasonably-sized site’ but it is more than likely this will be sites of 10 units or more.

What are the implications of the starter home scheme?

As part of the starter homes initiative the government have made changes to the section 106 agreement to include starter homes as part of the affordable homes requirement for new developments. This could lead to fewer affordable homes being available to rent and/or higher rental prices in the longer term.

The new definition of affordable housing has raised some concerns within the industry as it is believed the starter homes scheme will take priority over any other affordable housing obligations. Local authorities who have an obligation to provide affordable homes in the area will now be required to promote the supply of starter homes to first-time buyers.

In the short term this could have a dampening effect on the housing market if a large proportion of starter homes are built in a particular area. This could drive down demand for homes at full market price leading to a distortion within the housing market.

What does it mean for developers and builders?

The initiative allows greater flexibility in the way developers can deliver affordable housing on site by offering a mix of rented housing and starter homes for sale. Whilst this may incentivise developers to build more starter homes, it may result in less truly affordable housing in the UK.

With the changes to section 106 builders/developers will no longer have to include low-cost rented homes in new developments, instead they can include starter homes at a 20% discount to first-time buyers under 40. However there is still uncertainty over how developers will be compensated for selling homes at the discounted rate.